The average rate for a benchmark 30-year mortgage has dropped back down to the 3-year low of 3.45 percent it hit three weeks ago, which is within 14 basis points (0.14 percentage points) of the all-time low it hit in November of 2012 and 90 basis points below its mark at the same time last year, according to Freddie Mac’s latest Mortgage Market Survey data.
At the same time, the average rate for a 15-year fixed mortgage has dropped back down to 2.95 percent, which is 82 basis points below its mark at the same time last year, while the average rate for a 5-year adjustable is back down to 3.20 percent, which is 64 basis points below its mark at the same time last year, for an inverted spread between the 15-year fixed and 5-year adjustable rates of 25 basis points.
And while the Fed had signaled its intention to leave the federal funds rate unchanged over the next year and then start raising the rate in 2021, the probability of another rate cut this year just jumped to 99.5 percent, with no chance of a rate hike, according to an analysis of the futures market.
I am rather surprised that with 10 year treasuries at all-time lows, that mortgages are not tracking it quite as quickly. It seems like there is a floor somewhere around 2.5% that nobody wants to bother underwriting a mortgage for less than.
I think that when treasuries start hitting these lows, it’s because a recession seems imminent. When there is a recession, housing prices drop even faster than they have been and prices will fall below the loan balance, resulting in default. So the risk of default is rising almost the same amount that interest rates are falling, and thus, the net decline in mortgage rates is more moderate.
For people who have already lost their downpayment, it’s too late to do anything about it, but the risk is that even today’s borrowers will soon find their homes worth less than their loan balance. So lenders want to be compensated for that loss.
The spread between 15-year and 30-year loans has narrowed from around 1.0% to mere 0.5%. Is there a reason why that happens or is there an aversion to low rates in general?
A flattening of the yield curve represents expectations of lower future rates and is typically associated with increasing recessionary fears and a resultant flight to quality (which drives yields down).
The yield on the U.S. 10 Year Treasury Bond is heading for 1.35%. You read it here first. I have no predictions on the rate for benchmark 30-year mortgage.
It has been 25bps below that prediction for more than a week. Maybe cut back on some of that “incense.”
UPDATE: In a move which shouldn’t catch any plugged-in readers by surprise, the Fed has just announced an emergency rate cut of 50 basis points. At the same time, the probability of an additional cut by the end of the year is now running at around 80 percent.